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Question

from Cengage Learning-Google Chrome signmentMain do?invokers assignments&itakeAssignmentSessionlocator; e assignmenttake E Calculator Sparrow Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for ts,00 9.00, which includes $0.60 of fixed costs. it 4,000 units of the part are narmallyprhased could be manufactured using unused capacity, what would be the amount of dfferential ost iecrease or decrease for making e part rather than purchasing it? a. $1,600 cost increase b, $4,000 cost increase c. $12,000 cost decrease Od. $20,000 cost decrease

Explanation / Answer

Calculate differential cost :

Purchase cost = (4000*8) = 32000

Manufacturing cost = (9-.60)*4000 = 33600

Differential cost = (33600-32000) = 1600 increase

so answer is a) $1600 increase

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